Critical Analysis of the Judgement, Small Scale Industrial Manufactures

Association v. Union of India and Others, Writ Petition (Civil) No. 476 of 2020

About the Author:

The Analysis is by Mr. Prasanna Kumar, 4th year learner of B.B.A.LL.B. from Symbiosis
law School, Noida.

Abstract:
The analysis talks about the above-mentioned judgement also known as Loan
Moratorium Judgement, which was dealt by the Hon’ble Supreme Court of India as a
matter of various Writ Petitions being filed by various petitioners under Article 32 of the
Indian Constitution against the Reserve Bank of India and Ministry of Finance.

Introduction:
After the outbreak of the COVID-19 pandemic, the financial sector was majorly affected,
including the MSME’s and other borrowers. They had to go through a lot of difficulties
and even the banks and financial institutions were in a great trouble, this led to various
disagreements and conflicts between the lenders and the borrower. The judgement of
Small-Scale Industrial Manufactures Association v. Union of India and Ors,
Writ Petition (Civil) No. 476 of 20201 discusses the relief offered by the Apex court
of India for the dispute between the lenders and the borrowers.

Analysis:
RBI issued a circular dates March 27,2020 for rescheduling the payments of term loans
and working capital facilities and under the regulation issued, all the banking and
financial institutions were directed to grant a period of 3 months of moratorium for its
borrowers including individual borrowers, companies and MSME’s starting from March
1st 2020 to May 31st, 2020 and further extension of 3 months after 31st May, of the
same order due to prolonged national lockdown. The order specified a condition that
the interest would be paid on the outstanding portion of the loan even during the
moratorium period.
As a result, various borrowers including the MSME’s and the real estate sector had to
approach the Apex court.
The Apex court framed following issues:
1. Waiver of Compound interest/interest on interest during the moratorium period
2. Waiver of complete interest during the said period
3. Extension of moratorium period.
4. Reliefs granted to various borrowers.

And the petitioners further prayed to waive the complete interest on the loans for the
moratorium period and extend the moratorium period. As it was a national lockdown
and the Covid-19 fell under the category of the Disaster within section 2(d) of the

1
Small-Scale Industrial Manufactures Association v. Union of India and Ors, Writ Petition (Civil) No. 476
of 2020
Disaster Management Act2, hereby referred to as DMA. Section 12 and section 13 of
the DMA3 cast a duty upon the National authority to provide with a minimum period a
relief plan in case of financial distress to the borrowers in the matters of Loan
repayments, payment of interest and matters of granting of fresh loan. Further
according to section 72 of the DMA4, the DMA is a Special statute and should be treated
as a complete code.

But however, the counsel for the respondent contented that, the ministry of finance
and the RBI have taken various steps in order to help the borrowers in the time of
financial stress like they adopted a plan to suspend the initiation of corporate insolvency
resolution process under the IBC,2016 against the borrowers for that period in order to
prevent any more stress on them. Further the Respondents contended that the waiver
of complete interest on the Loan and borrowings would result in major negative
implications to the financial condition of the country resulting in a lot of chaos in the
Indian economy. Moreover, the use of the word “May” under section 13 of the Disaster
Management act does not cast an obligation on the courts to grant such reliefs as the
intention of the legislature was clear by using the word may that it is the discretionary
power of the court to decide according to the facts and circumstances of the case. As
ruled in the case of Pradip Kumar Maity v. Chinmoy Kumar Bhunia,2006, CALLT
27 HC5.

Therefore, the Hon’ble Apex court after hearing the arguments of both the parties
decided as follows:

1. The economic policies do not come within the ambit of judicial review of the court
and the power is vested with the RBI and the Ministry of finance and it can be
interpreted by the courts only when these policies are made in contravention to
the legislature and the constitution.
2. The Hon’ble Court refused the prayer to extend the moratorium period beyond
the period granted by the RBI, and also refused a complete waiver of interest on
the payment of loans during moratorium period.
3. The Hon’ble court accepted to waiver the compound interest/interest on interest
and total interest during the moratorium period.
4. The Hon’ble court directed the RBI to provide further relief to the borrowers who
have been adversely affected by the pandemic in order to help them in the
situation of financial stress due to Global pandemic.
5. The court directed the RBI to refund or adjust the amount already paid as interest
by the borrowers before the moratorium period.

2
Section 2(d) of DMA.

3
Section 12 of DMA: “Guidelines for minimum standards of relief followed by the national Authority”.
Section 13 of DMA: “relief in Loan repayment, etc”.

4
Section 72 of DMA:” Act to have overriding effect”.

5
Pradip Kumar Maity v. Chinmoy Kumar Bhunia,2006, CALLT 27 HC
References:

• Small-Scale Industrial Manufactures Association v. Union of India and Ors, Writ

Petition (Civil) No. 476 of 2020.
• Section 2(d) of DMA : “disaster” means a catastrophe, mishap, calamity or
grave occurrence in any area, arising from natural or man-made causes, or by
accident or negligence which results in substantial loss of life or human suffering
or damage to, and destruction of, property, or damage to, or degradation of,
environment, and is of such a nature or magnitude as to be beyond the coping
capacity of the community of the affected area”.
• Section 12 of DMA: “Guidelines for minimum standards of relief followed by the
national Authority”.
• Section 13 of DMA: “relief in Loan repayment, etc”.
• Section 72 of DMA:” Act to have overriding effect”.
• Pradip Kumar Maity v. Chinmoy Kumar Bhunia,2006, CALLT 27 HC